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Bill Consolidation: A DIY Guide

Posted In:  debt reduction

Taking on bill consolidation by yourself? You've likely seen the ads for companies that offer to consolidate all of your monthly payments into one payment with an overall lower interest rate and payment amount.  The allure of bill consolidation is high, but many of these companies are not reputable, and even those that are will charge you handsomely for the service.  What if there was a way to achieve the same result by doing it yourself?

Well, there is a way to do it yourself, but there's no real magic. Just some good old-fashioned analysis to see how big the problem is, a plan to address the problem, and then starting the real work.  Here's some guidance on how to get started with a DIY bill consolidation project.

Step 1 - Take inventory of bills you could consolidate

The best place to start is to get a handle on what bills could be consolidated, including the necessary detail like total amount owed, monthly payment, and yearly interest rate.  Taking this inventory will help you understand your current state, and will also help later in making decisions on what to consolidate.

Keep in mind that bill consolidation in only appropriate for bills that are related to a debt that's being paid off.  Monthly bills for services not related to a debt, such as rent, water bills, electric bills, insurance, etc, cannot be consolidated.

Monthly bills that are eligible would include student loans, mortgage payments, credit card bills, car payments, personal loans, department store cards, etc.  You can also potentially lump in one-time payments that might be overdue like a tax bill, collection/delinquent account payment, traffic tickets, fines, etc.

After you collect all these bills and information, compile your list in an easy to read format:

type company monthly payment interest rate balance notes
mortgage Wells Fargo $1153 7.5% $25,212 could refinance, interest rate is high
student loan DOE $323 6.0% $10,052  
visa card Chase $150 25% $3253 interest rate high
...(more rows)...          


Step 2 - Verify your inventory against your credit report

Now that you have your list, verify it by getting a credit report.  This will ensure that your list matches the list the creditors see, and it will show you some additional information, like late payments you may have made in the past.

Be cautious about where you get the credit report from!

Don't just type "free credit report" into Google and go to the first place you see!  There are a ton of shady operators in this space that will charge you for something you can easily get for free. Experian, Equifax, and TransUnion, the three big credit report bureaus, run a website together that will let you get a credit report for free:

You are limited to one every 12 months, but there's no charge, and no shady "upsell" of services that you don't need.

Do a little research on how to read the credit report.

The Federal Trade Commission has some specific advice about your free credit report, including advice on how to dispute errors, what the information in your credit report means, and advice on your rights as a consumer.  Lots of great resources at:

Experian, one of the major credit bureaus, also offers a great sample of a credit report with guidance on what the various sections and codes mean.  TransUnion also has a great sample with instructions

Step 3 - Identify Sources of Funding to Consolidate

  • Home Equity Loans - This is probably the most common way to consolidate bills, because of the typically low interest rate.  Be sure to consult with your banker, because states have different laws on what circumstances allow you to take out a home equity loan.  Some states restrict home equity loans to specific purposes, like home improvements.  Also, beware shady operators in this space.
  • Government Programs - A great example here is the Higher Education Act. The Higher Education Act (HEA) provides for a loan consolidation program under both the Federal Family Education Loan (FFEL) Programs and the Direct Loan Program.  See for more info.
  • Personal Loans - These may be a good alternative if a home equity loan isn't an option for you.  Interest rates are typically higher, since there's no property or other backing for the loan to reduce risk for the lender. Check with your banker on what options you might for a personal/signature loan.  You may want to reserve this option for consolidation of your higher interest rate debts, like credit card accounts.
  • Alternative Loan Sources - You have to be careful here, as there are a slew of bad choices and shady operators.  One option that's safe, and a bit innovative, is peer-to-peer lending. is the current leader in this space.  Read up on how prosper works and decide if it's an option for you.  The interest rates are based on your credit score, and should be similar to the rates for a personal loan from a bank.
  • Using Your Existing Credit Cards - Be extremely careful with option.  Consolidating multiple credit card balances onto one of your existing cards that has a lower interest rate is simple, and very tempting, but you'll need to do a bit of research first.  Make sure you understand the fine print on balance transfers, the interest rate that the transfer will carry, and any specifics that might be important.  For example, they could offer a low interest rate for balance transfers that only lasts a specific amount of time, then bumps up to a higher rate.  You'll also need to be diligent about paying much more than the monthly minimum to make sure you're not creating a new debt that will never be paid off.

Step 4 - Create a Multi-Strategy Plan

While your primary goal might be to consolidate your bills using the funding sources above, you'll do best with a plan that has multiple strategies.

First, match your funding source with the outstanding bills that have the highest interest rates, and still fit within the amount of money you are able to borrow.  For example, if you are able to secure $10,000 in funding, but have $20,000 in outstanding debt, you'll need to identify which bills you are going to consolidate.  Choosing those bills with the highest interest rates will have the biggest impact.

Second, employ some other techniques into your strategy that might help:

  • Negotiation -  Credit Card Debts are an extremely good candidate for negotiation, especially if you have all of your information together.  Remember to be polite, but firm.   Select one of the credit card bills that you may not be able to consolidate, and call the credit card company.  Explain that you have a source of funding, and intend to pay off the bill in full and close the account unless they are willing to reduce the interest rate to something more reasonable.  Be specific, and have a suggestion for what rate would be acceptable to you, within reason.  You might be surprised at how often they will work with you.  And, if you able to reduce the rate, that will leave more room in your consolidation plan for other bills.
  • Increasing Monthly Payments for bills that don't fit into the plan - For those bills that won't fit into your consolidation plan, you can also consider raising your monthly payment in order to pay them off sooner.  Consolidating the other bills opens up room to do this without raising the total amount per month that you are spending each month.
  • Refinancing - If you weren't able to get a home equity loan because of either state laws or the amount of equity you have, you could consider refinancing the loan at a lower rate.  This doesn't help directly with consolidation, but does accomplish two things:  1) Lowers your interest rate and monthly payment on your mortgage 2) Creates room to pay more on the remaining debts and bills.
  • Eliminate Unneeded Charges - One example is private mortgage insurance.  If your current mortgage balance is 80% or less of your home's current value, you may be able to stop paying for private mortgage insurance.  See How to Avoid Paying for PMI for more info.

Step 5 - Closing the loop

Once you've secured the funding and paid off the debts that you've selected, it's extremely important to close the loop, and close the accounts you've paid off.  This is especially important for credit card debts, both to reduce the temptation to spend more, and to reflect that the account is paid off and closed in your credit report.  Also remember to cut up and destroy any active credit cards that you don't intend to use any more.

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